KARACHI:

A court has temporarily barred the government from collecting an additional tax of up to 15 percent from banks as about a dozen financial institutions approached the court to suspend the tax they were required to pay after failing to have met the mandatory private sector lending objectives. last year 2024.

Citing the Pakistan Bankers Association, global media outlet Bloomberg reported on Thursday: “About a dozen banks in Pakistan have obtained temporary relief from the Islamabad High Court against a government levy on lenders if their loans to the private sector are less than aim. .”

The court will hear the case starting December 3, although it is not clear when the final order will be issued.

“Until the next date of hearing, no coercive action shall be taken against the petitioner on the basis of any calculation made by the tax department,” according to a November 13 order by Justice Babar Sattar on a plea by Meezan Bank Limited, available on the court’s website .

MCB Bank Limited, Askari Bank Limited, the Pakistan unit of Citigroup Incorporated, Standard Chartered Bank Pakistan Limited and Habib Metropolitan Bank Limited are among other lenders that received similar exemptions in separate orders, the media added.

While talking to The Express Tribune, Economist Arif Habib Limited Sana Tawfik recalled that the government, through the Federal Budget 2025, has imposed an additional levy of up to 15% on those banks that fail to lend at least 50% of their respective deposits . private sector at the end of the year on 31 December 2024.

The average Advance-Deposit Ratio (ADR) of banks operating in Pakistan was recently 38%, significantly lower than the mandatory 50%. As a result, banks were estimated to pay additional charges worth about Rs 197 billion this year, it was learnt.

Tawfik said the move away from banks was not surprising. She said they convinced the government to suspend the tax in the previous year as well, 2023.

She recalled that some of the banks have started accounting for the possible impact of the additional tax in their quarterly financial activity. However, many banks have been in court for several days, working to suspend the tax for this year as well.

She said it was not feasible for banks to increase their lending to the private sector amid the current economic slowdown. Most businesses are not willing to secure bank financing due to high inflation and high interest rates on loans.

In addition, banks are also reluctant to lend to the private sector as there is a high probability of banks recording additional non-performing loans (NPLs), which would lead to severe losses for financial institutions.

Some of the banks have already recorded non-performing loans from the private sector in recent quarters, she said.

However, bank lending to the private sector is expected to increase from next year with the anticipated return to stability in the economy.

Furthermore, the government has indicated that starting next year, it will change its strategy to calculate ADRs based on a full-year average rather than a single-day snapshot on December 31. This adjustment is expected to encourage increased credit to the private sector in the future.